Despite the heavy volatility during the month of August, ETFs saw a record number of inflows. This includes bond-focused funds, which are offering opportunities in corporate debt.
“Fueled by big cross-asset gyrations on Wall Street, investors added $75 billion to US exchange-traded funds last month, five times more than the same period in 2023,” Bloomberg noted. “It may well prove the tipping point that keeps inflows roaring toward another historic annual cash haul, after July saw $122 billion — the second-biggest monthly intake ever.”
One of the areas seeing inflows is bonds. In particular, corporate bonds are offering an ideal opportunity for fixed income investors, as noted in another Bloomberg report. As mentioned in the report, companies in the U.S. are looking to issue debt now prior to the presidential election to take advantage of cheaper borrowing costs.
“Debt underwriting professionals at banks expect corporations to borrow about $125 billion through US high-grade bond sales in September,” the report said, noting Ford Motor Credit Co, Target Corp, and Barclays Plc among the names undertaking new issuance.
Investors in turn could take advantage of the increased issuance, attaining higher yields now before the Fed cuts rates. For a fixed income solution that balances yield and rate risk in corporate bonds, consider the Vanguard Interim-Term Corporate Bond ETF (VCIT ). This fund tracks the Bloomberg U.S. 5-10 Year Corporate Bond Index. That index includes U.S.-dollar-denominated, investment-grade, fixed-rate, taxable securities issued by industrial, utility, and financial companies.
2 Ends of the Spectrum
For fixed income investors not looking for a median solution, but who want focused exposure on the short or long end of the yield curve, Vanguard has options for both ends of the spectrum.
For the short end of the yield curve, consider the Vanguard Short-Term Corporate Bond Index Fund ETF Shares (VCSH ). The fund seeks to track the performance of a market-weighted corporate bond index with a short-term dollar-weighted average maturity. It employs an indexing investment approach designed to track the performance of the Bloomberg Barclays U.S. 1-5 Year Corporate Bond Index.
For yield optimization on the long end of the curve, consider the Vanguard Long-Term Corporate Bond Index Fund ETF Shares (VCLT ). The fund tracks the performance of the Bloomberg U.S. 10+ Year Corporate Bond Index. This index includes U.S.-dollar-denominated, investment-grade, fixed-rate, taxable securities issued by industrial, utility, and financial companies with maturities greater than 10 years.
For more news, information, and analysis, visit the Fixed Income Channel.
